ACA's ‘Cadillac' Excise Tax Will Hit Lower Cost Health Plans, Practitioners Say


The Affordable Care Act's excise tax that starts in 2018 should be called the “Camry” tax—not the “Cadillac” tax—because it is going to affect more than just high-cost plans, a practitioner said at a conference on employee benefits.

The ACA's excise tax under tax code Section 4980I is pegged to the Consumer Price Index for All Urban Consumers (CPI-U), and not to health cost trend, which has been rising at a much faster clip that the CPI-U, said Helen Morrison a principal with Ernst & Young LLP, Washington.

What this means is that even plans with only a 70 percent actuarial value—a silver-tier plan under the ACA—will reach the excise tax threshold soon after 2018, depending on which geographic region they are in, she said Oct. 9 at a meeting of the American Bar Association, Joint Committee on Employee Benefits.

Starting in 2018, the ACA imposes a 40 percent excise tax on the cost of high-cost health plans above a certain threshold. The tax has been dubbed the “Cadillac tax.”

Employers will need to begin planning now, if they haven't already, to deal with the reality of the excise tax, said Morrison.

The first step employers need to take is to collect data on their plans, before making any decisions about what methods or products to adopt to curb costs, Morrison said.     

Coverage  

Dropping dependent coverage for spouses, for example, would seem intuitively to make sense as a tactic to lower plan costs, Morrison said.  

Employers that exclude working spouses from coverage may save money in the short term by cutting the number of covered lives, but the long-term effect of this strategy is less clear, according to a study from the Employee Benefit Research Institute.  

Wellness plans have gained in popularity, but the jury is still out on the degree to which they can lower plan costs, said Joanne L. Hustead, vice president and deputy leader of Segal Group Inc.'s National Health Compliance Practice in Washington.  Employers may find that disease management will offer “the biggest bang for the buck,” Hustead said.

Other wellness strategies include culture change, such as demonstrating management support for a healthy employee culture; behavioral modification, such as providing incentive to promote health behaviors; increasing communications about health; and health status metrics, such as biometric screening.

Although completely eliminating coverage is a possibility, to date, the vast majority of large employers haven't terminated health-care coverage for full-time employees, Morrison said. Some large employers may be holding off on this decision while waiting to see if other companies drop coverage, she said.

However, some large companies have eliminated coverage for their part timers, such as Wal-Mart Stores Inc., Target Corp. and Home Depot Inc.

There is no single “silver bullet” that will control costs, but there are many opportunities, Morrison said.

Excerpted from a story that ran in Pension & Benefits Daily (10/10/2014).